Commercial Hire Purchase (CHP)

How does a Commercial Hire Purchase (CHP) work?

Under a Commercial Hire Purchase (CHP) arrangement the financier agrees to purchase the car on behalf of the customer, and then hire it back to them over a set period of time.

The customer has the use of the vehicle for the term of the contract but is not the owner of the vehicle.

At the end of the contract term when the total price of the vehicle (minus any residual) and the interest charges have been paid in full, the customer takes ownership of the car.

Benefits of a Commercial Hire Purchase (CHP)

  • Flexible contract terms ranging from 12 to 60 months (one to five years)
  • Residual value (baloon or final instalment) may be placed on contract
  • Fixed interest rate
  • Monthly repayments are fixed
  • Costs are known in advance
  • Deposit (either cash or trade-in) may be used
  • A tax deduction is available when the vehicle is used for business purposes
  • GST is not charged on the monthly rental or residual payment (but is charged on fees and interest)
  • Customers registered for GST can claim the GST in the vehicle price, fees and interest
  • The finance is secured against the vehicle, allowing lower interest rates

Who does a Commercial Hire Purchase (CHP) suit?

A Commercial Hire Purchase (CHP) may be suitable for business (including companies, partnerships and sole traders) who account for GST on either an Accruals or Cash basis.

Prior to 1 July 2012, Commercial Hire Purchases were commonly used by individuals receiving a car allowance and using their vehicle predominantly for business purposes. However, due to changes to the GST treatment of CHP that came into effect on 1 July 2012 a CHP is now significantly less attractive in this circumstance, and employees with a car allowance may wish to consider other finance options.